With numerous credit cards available, selecting the one that best matches your financial goals may feel daunting. Some offer points that can be redeemed for travel, shopping or movies, while others provide a straightforward cashback reward or other benefits.
Use this quick guide about the different categories of credit cards, their benefits and perks to help discover which one is best for your situation.
Start with your goal, not the card
Before choosing a credit card, define what you're trying to achieve. Do you want to build your credit score or earn rewards? Or maybe you prefer to focus on managing debt or funding a big purchase. Ultimately, your goal should guide your card choice — not the other way around.
For everyday spending
Here are two popular types of credit cards that reward cardholders for everyday purchases:
Rewards cards offer points or miles for purchases, which you can redeem for merchandise, gift cards, travel and accommodation. Some are connected to specific airlines and others allow you to book with different companies. These cards may have an annual fee or an annual minimum spend requirement, and often have higher interest rates. They can be beneficial if you pay off your balance monthly and will actually use the rewards.
Cash back cards give you back a percentage of your spending, typically somewhere between 1% and 4%. These cards often have bonus categories, including groceries or gas, that earn a higher cash back percentage. Consider these cards if you do most of your day-to-day spending with a credit card and your go-to spots align with the cash back bonus categories.
For travel
If you're a jetsetter, travel reward cards offer a variety of perks. When you earn airline miles, you can redeem them for flights, hotel stays and car rentals.
Some credit cards may also include other add-ons such as exclusive airport lounge access, travel insurance, free baggage check, priority check-in and zero foreign transaction fees. These cards may be suitable if you are a frequent traveller or saving for a big trip.
For managing debt
The following credit cards are designed to help manage your debt load:
- Balance transfer cards offer a low or zero percent introductory offer when you consolidate and transfer your balance. This can help you to pay off existing debt faster. Typically, the promotion of a low or no-interest rate only lasts for a specific timeframe, so it's important to understand the offer. This type of offer may be suitable if you have accumulated credit card debt on a higher-interest card and want to pay it down faster.
- Low-interest cards provide a lower Annual Percentage Rate (APR) compared to standard credit cards. If you are making large purchases and plan to carry a monthly balance, these cards may be of interest. However, it’s very important to consider the costs of maintaining a statement balance at any interest rate. The drawback is that they tend to offer fewer benefits or rewards compared to other credit cards.
For building or rebuilding credit
If you are new to credit products or have had late payment issues in the past, consider these credit card types to help build or rebuild your credit:
- Secured credit cards require a refundable deposit, which is used as collateral. You’re technically spending your deposit, but you are still required to make regular payments like a traditional credit card and your activity is reported to credit bureaus. If you have limited or poor credit history, you can potentially improve your credit score by using secured credit cards.
- Student credit cards offer lower credit limits and low or no fees compared to standard credit cards, and often provide discounts at retail stores or restaurants. These cards are designed to help young adults build credit responsibly.
For business owners
If you're a freelancer, entrepreneur or have a side hustle, consider obtaining a business credit card. Using a credit card for business can help you track expenses and earn business-specific rewards, such as a travel loyalty program or business-focused points.
Plus, if you have partners or employees, you can order additional cards for them. Typically, they provide tools for managing employee spending. Keep in mind that business-focused cards often charge an annual fee and may have fees for other services such as foreign transactions.
Match the card to your lifestyle and goals
Finding a credit card that suits your daily spending habits can be a smart choice. For example, if you dine out often, look for cards with restaurant rewards. If you commute frequently, consider prioritizing credit cards that offer fuel incentives or transit rewards. Alternatively, if you’re a minimalist, then a no-fee, flat-rate or tiered cash back card might be best.
If your needs change, you can reassess and change or upgrade your card to suit new needs. When used wisely, credit cards can be a valuable tool to help build your credit score, establish a strong financial foundation and maybe enjoy some useful perks along the way.
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